Craft Brew Bills Raise Questions Over Alcohol Code

The Senate Business and Commerce Committee on Tuesday acted as legislative referee over bills that would allow craft breweries to sell on their premises and self-distribute in Texas, but critics said the legislation would hurt the state's system of alcohol production and distribution.

“It’s two different visions of where the beer industry in Texas needs to go,” said Rick Donley, president of the Texas Beer Alliance.

State Sen. Kevin Eltife, R-Tyler, filed a package of bills in February that would make significant reforms to the Texas Alcoholic Beverage code and the state's three-tiered system that regulates the production, distribution and retail sales of beer separately, dating to the end of Prohibition.

Eltife said the legislation also puts Texas brewers “on a level playing field with other states” in their treatment under the law. The change is strongly supported by the Texas Beer Alliance, which lobbies for major-brand beer distributors and some craft brews. Donley said the legislation supports the growth of craft breweries and addresses lawsuits surrounding the Commerce Clause.

Senate Bill 515 would raise the annual barrels a brewpub could produce from 5,000 to 10,000, grants a limited right to self-distribute to retailers and allows retail sales through distributors. SB 516 and SB 517 raise the annual production limit used to determine which small ale brewers and beer manufacturers can participate in self-distribution. SB 518 allows small brewpubs to sell their beer to customers on their premises and sets tasting room hours of operation.

“It creates a nice steppingstone for when a brewery starts out small and grows larger into a production brewer,” said Scott Metzger, owner of Freetail Brewing in San Antonio and legislative chairman of the Craft Brewers Guild. “It becomes a pathway.”

Currently, brewpubs, which can only sell to directly to consumers, cannot make the transition to become production breweries, which sells to wholesalers, Metzger said.

The Texas Beer Alliance did not always champion these changes, but craft breweries have recently become the industry’s gold mine. “It is the only segment in the industry to show growth in the last four years,” Donley said.

But Eltife’s bills are being challenged by Senate Bill 639, filed by state Sen. John Carona, R-Dallas, and supported by the Wholesale Beer Distributors, which presents a host of complex changes to the code, centered on severability, reach-back pricing and distribution — problems that Carona's staff argues go unaddressed in Eltife's bills.

“For whatever reason, the working groups didn’t anticipate the issues that you find in 639,” said Steven Polunsky, Carona’s committee director. “If passing craft beer was easy, it would’ve been passed three sessions ago.”

Polunsky said Carona’s bill forces the issues into the public, “where you can have this discussion and then have it move forward.”

In testimony on Tuesday, Randall Yarbrough, a lobbyist for the Wholesale Beer Distributors, left the door open for further negotiations. “If we can accomplish this in other ways, we’re willing to continue to work to find other language,” he said.

“They’re afraid of change,” said Metzger, who testified in favor of Eltife’s bills. “The status quo has been very beneficial to them for a long time, and we need to come to the table and explain that these changes aren’t designed to tear away what these business owners have built, but rather grow the market.”

The Wholesale Beer Distributors did not immediately return requests for comment.

Carona, chairman of the Senate Business and Commerce Committee, set a Monday deadline for the parties to make a deal. “If you don’t meet that deadline, I’m pushing this legislation to the very end of the session,” he said at the end of the public testimony Tuesday.

But Donley said that the groups “did not make a lot of progress” at a negotiation Tuesday afternoon.

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